Turning Points

"By the Law of Periodical Repetition, everything which has
happened once must happen again, and again, and again -- and not capriciously,
but at regular periods, and each thing in its own period, not another's,
and each obeying its own law... The same Nature which delights in periodical
repetition in the sky is the Nature which orders the affairs of the earth.
Let us not underrate the value of that hint." -- Mark Twain

Current Position of the Market

Long-term trend - Down! The very-long-term cycles have taken over and
if they make their lows when expected, the bear market which started in October
2007 should continue until 2012-2014. This would imply that much lower prices
lie ahead. This will not be a straight-down decline, but a series of intermediate-term
rallies and declines until we have reached the low point.

SPX: Intermediate trend -The counter-trend rally which started on March
6 is not over after all and 956 will most likely be exceeded with a move to
962 and perhaps 1000.

Analysis of the short-term trend is done on a daily basis with the
help of hourly charts. It is an important adjunct to the analysis of daily
and weekly charts which discusses the course of longer market trends.

Daily
market analysis of the short term trend is reserved for subscribers. If you
would like to sign up for a FREE 4-week trial period of daily comments, please
let me know at ajg@cybertrails.com.

Overview:

The Summary of the 7/5 newsletter started with the following:

"Looking at all the statistics, the overall feeling is that the SPX has
become overbought and is in a corrective phase rather than at an important
top."

On 7/8 The SPX made a low at 869.32, formed a small base for the next 3 days,
and then started up. This past Thursday, it made a high of 943.56, and closed
at 940.38 on Friday! And it looks as if it will not be satisfied until it has
made a new recovery high. The NDX has already done it, and since one of my
analytic tools is the NDX/SPX ratio, I feel comfortable with the premise that
a new recovery high lies ahead.

Under "Cycles", I had also written: "Long-term cycles should provide
some buoyancy until the end of July or early August but they could be trumped
by weak economic data." In fact, the Jobs report for June was worse than
expected and sent the SPX down to its correction low; but then, excellent
earnings by the large banks and some of the techs such as IBM and Intel had
a reverse effect and were the trigger for renewed buying.

The mood has quickly shifted from "The economy is showing no improvement after
all" to claims that the recession is over, and this is the mood which is dominating
the market right now. This kind of violent whipsaw action is confusing all
except the best traders. This is the reason I have decided to drop EWT and
stick to cycles and conventional analysis with an emphasis on the latter. We'll
come back to it when it is an asset instead of a liability.

Let's analyze the charts and see where we are.

What's ahead?

Chart Pattern and Momentum

In the weekly chart, we can see that the SPX rally was first stopped by its
secondary channel (brown lines) and the mid-point channel line of the primary
channel (red). After a four-week decline which held at a previous support level,
it is trying again to move higher, and has already succeeded in breaking out
of the brown channel decisively, but it stopped at the red mid-channel line
and has not yet made a new high. The top indicator never gave a sign of divergence
at the top of the move -- how can you when you register 100%, which is as high
as you can go? But it did give one during the correction, and this must be
kept in mind if it is confirmed by a divergence on the upside in the current
rally.

The lower indicator never gave a sign of divergence, nor a confirmed sell
signal either. Therefore this upmove, should not come as a total surprise.

Since the top indicator is still overbought, and is now showing negative divergence,
we must watch closely for the formation of a top, unless it is erased as the
indicator moves up to 100% once again.

The weekly chart gives us a good overall perspective of the market position
and seems to be in sync with the longer-term cycles which want to give us a
pull-back into the end of the month, and then push higher into early August.
For a more detailed analysis, we'll move next to the daily chart.

Because of space restriction, you can only see the top of the secondary channel
(brown line) which was running almost parallel to the non-exponential 200-DMA.
The SPX had broken above the MA on 6/1 but had failed to follow through because
it was stopped by the top brown channel line. During the consolidation, it
traded on both sides of the channel line and found support on the non-exponential 200-DMA.
Since making its low on 7/8, the index has been in a powerful rally but Friday
was the first day that it did not make a new high, and with the indicators
curling over (something that we will see more clearly on the hourly chart)
we may be ready to start forming a short-term top that will correct into the
20-wk cycle low near the end of the month.

By overcoming 931.57, the SPX has re-established an uptrend and, after a correction
into the cycle low, will be in a position to challenge its 956 high, providing
the cycle does not bring too much weakness. A retracement to the support provided
by the 50-day MA which is currently at about 914 would be ideal.

I have drawn what I think may be the broader uptrend channel which is currently
defining the uptrend. If the idea has merit, we should continue to explore
the top of the broader channel until the longer cycles turn down in early August.

Let's now look at the hourly chart (below).

Two minor cycles bottoming on the 16th have probably given the last little
push into higher territory before meeting with resistance at 943. There was
a conservative point & figure count provided by the little shelf below
to 941. This is about where we closed on Friday. One advantage of being late
in publishing the newsletter is that we get to see the Globex action during
the week-end. The September futures dipped as low as 928.30 before re-bounding
to its current reading of 935.40, but it's anyone's guess what they will be
tomorrow at the open.

Note that there is a channel which defines the up-move from 869. With all
three indicators rolling over after being overbought and showing some negative
divergence, it is likely that the SPX is on its way to challenging the bottom
of the channel, around 924. We'll discuss the potential dates for lows under
cycles.

Cycles

I had almost given up on my longer-term cycles to provide a market high in
early August, but it's looking pretty good for that time frame, now.

Before we get there, however, Erik Hadik has us scheduled for a cycle low
around the 23rd.

There is also a 20-wk cycle due on the 28th-29th.

Projections:

There are now two potential projections for the high in the SPX: 962 and 1000.
We'll have to decide which of the two will work best as we move forward.

Breadth

The NYSE Summation index (courtesy of StockCharts.com) which appears below,
had become very overbought when the SPX hit 956. It has corrected along with
the index without giving up too much ground. During the correction, the RSI
became oversold and turned with the market. But negative divergence is already
showing up -- something we were waiting on to determine that we were at an
intermediate-term high. However, we are not there yet! After the RSI moves
up to 60 or 70, it will be time to become concerned.

The daily breadth indicator is beginning to roll over for a corrective move.
It, too, is not yet indicating a top in the index.

The hourly has already given a sell signal for a correction, in accordance
with the cycles which lie ahead.

Market Leaders and Sentiment

The NDX made a new recovery high last week. Since it continues to lead the
SPX, this constitutes positive divergence and suggests that there is higher
to go before we make an intermediate term top. Only when it will begin to show
some relative weakness to the SPX can we look for a top in the move which started
at 667 on the SPX.

The sentiment indicator (courtesy of Sentimentrader) shows the short-term
indicator to be negative for the market, in accordance with the other indicators
that are rolling over. This supports a pull-back in the indices over the next
few days.

The long-term indicator is just below neutral and gives us a little more room
for the rally especially if we are going to be correcting over the short term.

Summary

The indices have found new life indicating that the move from 667 is not yet
complete. Our original time target of late July/early August should turn out
to be correct after all. A price target of 662 or 1000 should be met. Market
action will decide which is the right one.

The following are examples of recent unsolicited subscriber comments:

Awesome calls on the market lately. Thank you. D M

Your daily updates have taken my trading to the next level.
D

... your service has been invaluable! It's like having a
good technical analyst helping me in my trading. SH

The above comments about the financial markets are based purely on what I
consider to be sound technical analysis principles uncompromised by fundamental
considerations. They represent my own opinion and are not meant to be construed
as trading or investment advice, but are offered as an analytical point of
view which might be of interest to those who follow stock market cycles and
technical analysis.